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Saving for your child's education

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Cape Town - Without a certified tertiary education, the
chances of South African children finding long-term employment are low, a local
investment analyst said on Tuesday.

“Parents often view ensuring their children receive a good
education with high importance. But many parents are still confronted with the
reality that they have simply not saved up enough to be able to comfortably
fund their children’s tertiary studies.

"As a result, their children are forced to seek out student
loans and bursaries or take up part-time employment to cover these expenses,”
said Anil Jugmohan, an investment analyst at Nedgroup Investments.

According to a report published by Organisation for Economic
Cooperation and Development, South Africa has the worst unemployment
rate in the 15-24 age group.

“Only one in four South African matriculants will find
employment after school. It is crucial to educate our young population and
parents on the importance of setting aside funds to provide their children with
the best chance of permanent employment: a university degree.

“SA is slowly moving towards the scenario faced by countries
like China, where advanced degrees are becoming the bare minimum to find good
employment,” Jugmohan said.

Parents should look to put long-term financial savings plans
in place that will enable them to send their children to a reputable tertiary
institution, said Jaco Gouws, product marketing actuary for Old Mutual South
Africa.

Education fees on average increase by 9% a year, 3.5% above the current inflation rate. This means that fees will more than
likely rise above any rate of salary increases you may receive.

So on average, how much would you need to save per month?

“Today an average public school education could cost you
around R450 000 in school fees alone from Grades R to 12, and a private school
R1.5m. This excludes extramurals, books
and stationery,” said Gouws.

“To send the same child to university to do a three-year
business degree in 2013 would cost about R350 000 in fees alone. That excludes
all other related costs like monthly stipends, academic material, accommodation
and travel.

“If your child is born this year, you’ll have to save about
R3 800 per month to send him or her to private school and university to do a three-year business degree.

“This is if you increase your premium with education
inflation every year. Remember that your salary may increase every year with
inflation too. Provided you keep your premiums level, you will need to save
about R8 100 per month.

“If you plan to send your child to public school and
university to do a three-year business degree and you increase your premium
with education inflation, then you will only be required to save R1 500 per month.

"If
however you keep your premium level without increasing it yearly as your salary goes up, then you will need to save R3 200 per month,”said Gouws.

Of course, many parents are already struggling to meet the
expenses involved in raising a family – especially in an environment where the
economy is losing momentum fast. It is always worthwhile to look for
opportunities to be thoughtful around spending and financial planning.

“By consistently contributing relatively small amounts now,
parents will eventually accumulate an attractive lump sum by the time the child
is ready for university,” said Jugmohan.

While saving for your child’s education may be your primary
goal, the real prize is watching them reap the benefits that a college or
university degree offers. Saving smarter for your children’s education is key
and the sooner you get going, the better.

Jugmohan provides the following tips to young parents saving
for their childrens' education:

Start
early: the longer the investment period, the more likely the fund will grow
without too much strain on your budget for other expenses.

Accept
that a lower standard of living might be necessary to avoid a higher
risk of financial difficulty later.

Try to
avoid making withdrawals unless absolutely necessary. The effect of compound
interest means that any withdrawals will severely curtail the accumulated
amount.

Encourage
your child to contribute to their education with money from part-time and
holiday jobs. Not only will this help the final amount, but it also instils in
your child an understanding of the importance of saving and budgeting.

Research
possible scholarships and bursaries. There are funding grants available and you
should see if any are applicable to your child.

- Fin24

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